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Why Rising D2C Brands are Prime Targets for FTID Fraud

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Amanda Martin
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Why Rising D2C Brands are Prime Targets for FTID Fraud

As eCommerce continues to expand, so too does the sophistication of fraud targeting online retailers. One of the most pervasive forms of return fraud is Fake Tracking ID (FTID) fraud, which has quickly become a multi-billion dollar problem for businesses. While all online retailers are susceptible, rising direct-to-consumer (D2C) brands are especially vulnerable. In this article, we’ll explore why D2C brands are prime targets for FTID fraud and what they can do to protect themselves.

What is FTID Fraud?

FTID fraud is a method used by cybercriminals to exploit the return systems of eCommerce retailers. It involves manipulating return shipping labels so that a return package is scanned as "delivered" by the shipping carrier, but never actually reaches the retailer’s warehouse. Fraudsters manipulate the tracking information to make it appear as though a return was completed, prompting an automatic refund or convincing customer service agents that the returned item was received.

This highly organized form of fraud often goes undetected because it exploits vulnerabilities in the retailer’s return system, rather than banking or payment systems. Fraudsters can use FTID methods repeatedly, racking up significant losses for retailers.

The Rise of D2C Brands

Direct-to-consumer (D2C) brands are flourishing as more companies choose to sell their products directly to consumers via online platforms, bypassing traditional retail channels. These brands have many advantages—greater control over customer relationships, branding, and product experience—but they also face unique challenges, especially in combating fraud.

Most D2C brands, particularly those that are growing rapidly, rely heavily on automation to streamline operations, including returns processing. This automation, while excellent for customer convenience, creates vulnerabilities that fraudsters are quick to exploit.

Why D2C Brands are Prime Targets for FTID Fraud

Several factors make D2C brands particularly susceptible to FTID fraud:

1. Automated Returns Systems

Many D2C brands use automated return platforms like Loop Returns or Narvar to simplify the returns process. These systems allow brands to process refunds based on tracking events, such as when a package is marked as "delivered" by a shipping carrier. Fraudsters take advantage of this automation by manipulating tracking information to show false deliveries, triggering refunds for items they never actually return.

While automation reduces operational costs and improves customer experience, it can create blind spots for fraud detection. Automated systems are often not equipped to differentiate between legitimate and fraudulent returns.

2. Lack of Dedicated Fraud Teams

Rising D2C brands often have lean operational teams that juggle multiple responsibilities. These companies may not have the resources to employ a dedicated fraud team, and therefore cannot manually inspect each return for irregularities. This makes it easier for fraudsters to slip through the cracks, especially when fraud detection tools focus on payment fraud rather than return-related scams.

The sheer volume of returns can be overwhelming, leaving smaller teams unable to keep up with sophisticated fraud schemes like FTID. For growing brands, preventing fraud becomes a lower priority compared to scaling their business and fulfilling customer orders.

3. Outsourcing to 3PLs

Many D2C brands use third-party logistics providers (3PLs) to handle their fulfillment and return processes. While outsourcing helps streamline operations, it adds a layer of separation between the brand and the returned goods. This detachment makes it harder for brands to closely monitor their returns, giving fraudsters more opportunities to manipulate the system.

Since the brand does not directly control the returns process, fraudsters can exploit these gaps by rerouting return packages to random addresses near the 3PL warehouse, where they can receive a "delivered" scan without the item actually being returned.

Common Fraud Patterns Targeting D2C Brands

Fraudsters targeting D2C brands often employ specific tactics to evade detection, such as:

  • Order Splitting: Fraudsters may split their returns into multiple smaller shipments rather than sending back the entire order at once. This approach makes it harder for retailers to detect patterns of fraud, as each return appears to be a separate, legitimate transaction.
  • Repeated Orders with Slight Variations: Another common tactic is "jigging," where fraudsters slightly alter the shipping address or email address with each new order. For example, a fraudster might add a space or alter the spelling of a street name to bypass fraud detection systems.

These tactics make it difficult for automated systems to flag suspicious behavior, allowing fraud to go unnoticed for long periods.

Consequences of FTID Fraud for D2C Brands

The effects of FTID fraud on D2C brands go beyond immediate financial losses. Some of the broader impacts include:

  • Financial Losses: D2C brands may issue refunds for items they never receive, paying return shipping costs and losing the merchandise. Over time, these losses can add up, severely impacting a company’s bottom line.
  • Customer Experience Challenges: To prevent fraud, some brands tighten their return policies or implement more stringent verification processes. While these measures can help reduce fraud, they can also frustrate legitimate customers, leading to poor customer experiences and potential loss of business.
  • Damage to Brand Reputation: Fraudsters often resell stolen goods at discounted prices on third-party platforms like Amazon, undermining the brand’s pricing strategy and eroding consumer trust. This unauthorized resale can also create confusion among customers who encounter price discrepancies between the brand’s website and other online retailers.

How D2C Brands Can Protect Themselves

While FTID fraud poses a significant challenge, there are steps D2C brands can take to protect themselves:

1. Fraud Detection Solutions

Investing in specialized fraud detection tools, like Tailed, can help D2C brands stay ahead of fraudsters. These tools can integrate with existing return systems to flag suspicious activity, such as multiple returns from the same address or altered return labels. By automating the fraud detection process, brands can reduce the risk of fraudulent returns without overburdening their operational teams.

2. Regular Audits

Performing regular audits of return data can help brands identify patterns of fraud early on. Analyzing return patterns and cross-referencing with order histories can reveal anomalies that may indicate fraud.

3. Improved Employee Training

Training employees to recognize the signs of FTID fraud is essential. By educating customer service teams and warehouse staff on what to look for, brands can increase their chances of catching fraudulent returns before they result in significant financial losses.

Conclusion

Rising D2C brands are particularly vulnerable to FTID fraud due to their reliance on automated returns systems, lack of dedicated fraud teams, and use of third-party logistics providers. This makes it essential for these brands to take a proactive approach to fraud prevention. By investing in fraud detection solutions, conducting regular audits, and training their employees, D2C brands can protect themselves from the costly and damaging effects of FTID fraud.

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